Securing the future

25 August 2006

David Case knows how hard life is for start-ups - he built an award-winning security product but still couldn't crack the market. Now he's won backing to try a radically different business model

David Case set up his first IT security company, Secure Technology Group, in 1997 and spent four years and hundreds of thousands of pounds developing an advanced product, KeyDrive. Despite beating all the major security vendors to pick up a prestigious industry award, the sales partnership he was relying on didn't work out and he struggled to break into the consumer market. After rethinking every aspect of what he was doing - from marketing strategy to product design - he's bounced back and is in the final stages of securing funding to market a new generation of security products through his latest venture, StealthWare (www.stealthwarecorp.com). The new product range includes secure encrypted hard drives, encrypted email, and further down the line, Voice over IP, messaging and video-conferencing.

You had a long and ultimately frustrating experience with Secure Technology Group. What prompted you to set up on your own in the first place?

I was sat in front of a customer at the previous company I worked at, giving the typical security talk - and I distinctly remember thinking: 'I don't believe the bull I'm peddling here, so how can I expect the customer to?' I wanted to sell security not on the basis of the threat, but on the benefits. So I decided to go out and do something about it myself. I wanted to create a product that was inexpensive, easy-to-use and does what it says on the box.

We kicked off Secure Technology Group at the end of 1997. I did all the development in-house myself. That was mistake number one - I was the product designer, implementer, marketer and evangelist. We launched it and got a number of customers, like Dun & Bradstreet and the City of London Police - more by persistence and bloody-mindedness than intelligent selling. I wanted to create a distribution network but didn't realise how difficult it could be, and didn't have the money we needed.

Then KeyDrive was named Data Security Product of the Year in the Computing Industry Awards 2002 - we beat all the major players like RSA, Microsoft, and Symantec. After three years of hard work that opened us up to a number of distributors and resellers.

You struck a deal shortly afterwards allowing a software publisher to market the product for you, and got onto the shelves of some top high street stores. So what went wrong?

The publishing agreement seemed like a good deal - we were going to get 20 per cent of global revenues from the product, and they met the cost of manufacturing, marketing etc. They got it accepted by Dixons (now DSG International) for PC World, and also John Lewis. But then they were taken over by a company that had another competing product on their books. That was the one they put all their attention into - and so ours just fell very flat.

That was a particularly bitter time. I was trying to work out what I had to do to make the product a success - we just couldn't get it sold. Being of a technical bent, you think what the market wants is a superlative technology product - in fact, what it wants is pretty boxes and buzzwords, and something people can buy from the right place. If they buy it from PC World, they expect it will work.

We underestimated the amount it would cost to take a boxed product to market - it takes an insane amount of money. But if you go into a publishing deal instead, you have to look at what might happen in the future. Our deal looked fantastic on paper, we were all very happy, we went out and bought champagne - in hindsight, we should have bought aspirin.

How close were you to collapse, and how did you move things forward?

I was running out of money. We'd put close to ₤500,000 into the business - the bulk of it from me with about 20 per cent from external investors - and I'd been working without a salary for four years. At that point in 2003, the bank didn't want to know, the VCs didn't want to know. So I started to do consulting work to generate enough cash to keep the business going. I decided I needed to restructure the whole concept of the business, and create a new business with a very strong board and strong management skills, and also feed into a method of marketing that was being proven by the likes of eBay and Skype - viral marketing. I didn't write the product and then say 'How do I market it?' - I looked at how successful viral marketing is, and designed a security product to fit into that model.

We've created a product that touches on the human need to share. Think about when you got your first mobile phone - you probably made a dozen calls straightaway to friends. So we created a product, secure email, that you get for free. You then email a friend to tell them - they can't read it unless they're a member, so we send them the joining instructions with the email and they can sign up to it. They then email their friends, and so on.

There's very little support required, no cost for the actual product, no CDs, no distribution channel. So now people have access to very high quality security. If they want to upgrade from the free version to the full-blown version, there's a one-off fee of $24, or roughly ₤14. And if they want us to provide software upgrades going forward and get our anti-virus updates, it's an additional ₤14 per year.

I'm also looking very carefully at the market and at our potential 'allies' - companies like Skype, eBay, Google. I want to make us attractive to them as partners. So I've been developing things like online drive encryption for email providers and SMS on mobile phones.

How did you secure the funding?

I realised that if I wanted real money, I had to go to the professionals - and to do that, I needed a very strong board of directors. So the goal was to find people who I wanted to run the company for me. I identified a great CEO and chairman - people who share the vision and can batter down doors. I got them on board, and took the proposal to a private equity company - and they said 'Let's do it!' We hope to conclude the deal in the next three weeks.

Everything in the product is designed to promote sharing - that's what excited the investors. It wasn't my technical expertise: the only thing that got investors interested was that they understood my model of getting 4.5m people on board for ₤3 million.

You've been through a lot of pain and learnt a lot on the way. What advice would you give other tech entrepreneurs?

The lesson I learned was don't develop a product for its technical capability - products must be designed and developed to appeal to a growing, sustainable market. That's the mistake that 99.99 per cent of technology people make. It was a hard lesson to learn - it took me seven years.

Also, I was the wrong person to run the business - I'm great technically, but when something has evolved and has been in your head for years, you tend to be very protective of your baby. I've got enough business acumen now to know I need the right kind of person to take the company to its next stage.

David Case was talking to Keith Rodgers of Webster Buchanan Research